John Farrell: Let’s look more closely at the Xcel deal on closing coal plants

By JOHN FARRELL |May 23, 2019 at 12:33 am

Earlier this week, Xcel Energy announced an agreement with several environmental organizations over its upcoming 15-year resource plan. Highlights include early retirement of its coal plants, new solar commitments, and buying a fracked-gas plant. While there are several significant wins for Minnesota’s health, environment, climate goals, and energy customers, it comes at a high cost for measures that the state’s utility regulators should require of the utility without concession.

Xcel shareholders make out handsomely. The monopoly utility wins a cease fire over its proposal to purchase an existing gas plant in Mankato. Taken together with the proposed Becker gas plant that it won through legislative hijinks two years ago, the projects will add well over $1 billion to the company’s rate base — the capital expenses that the utility’s shareholders earn profits on.

The settlement also includes an offer of utility ownership of half the proposed 3,000 megawatts of solar. At today’s prices, that’s close to another $2 billion in utility spending.

Although not part of the agreement, Xcel simultaneously shared its intent to extend the license of the Monticello nuclear power plant. With retrofit costs ballooning over 100 percent earlier this decade, it’s likely Xcel shareholders could see another big reward. After all, on every dollar spent to build or maintain a power plant, shareholders collect a 9 percent to 10 percent return. All told, shareholders could have just locked in nearly $500 million in profits.

The returns for Minnesota customers?

In the headline move, Xcel will retire its remaining coal plants by 2030. While locking in this transition is key to exacerbating the climate crisis, coal plants across America are closing because they can’t compete with clean energy. Arguably, utility regulators with the public interest at heart would insist on such retirements, without any settlements or trade-offs.

The move may also have a smaller climate impact than the parties wish. Xcel plans to replace a substantial portion of the retiring coal capacity with fracked-gas-fired power. The utility asserts it can do this without harming its 80 percent carbon-reduction goal, but only through a glaring omission. Aside from the well-documented health and environmental concerns around the extraction of fracked gas, gas extraction rigs and pipelines leak. With a greenhouse impact 100 times more powerful than the carbon dioxide released during power generation, leaked methane has been shown –– in a recent study of Minnesota’s grid –– to largely erase the greenhouse gas emission gains of switching from coal to gas.

In other words, Xcel shareholders could earn a half a billion dollars in profits from a settlement that falls short of the carbon reduction goals the utility had already publicly committed to.

Should the clean energy groups have compromised? Setting retirement dates for coal plants is no small matter in a climate crisis. It’s hard to blame them for wanting to secure a win, even if it’s simply firming up the utility’s public commitments.

Rather, this settlement exhibits a stunning lack of faith in the monopoly utility’s regulators, the five-member Public Utilities Commission. Regulators should already be demanding early coal plant retirement to save customers money. Just because Xcel snuck one gas plant past regulators in a legislative end-around doesn’t mean they should roll over for a second time. And energy efficiency commitments shouldn’t be voluntary when they represent the cheapest source of energy. Unfortunately, controversial recent decisions by the state’s Public Utilities Commission have approved a new gas plant for a northern Minnesota utility and a new oil pipeline that both failed statutory requirements to demonstrate need and cost-effectiveness.

This resource plan settlement is lopsidedly in favor of Xcel shareholders, but it’s hard to blame the advocates. They’ve had too much experience with Minnesota’s brand of monopoly utility oversight.

John Farrell is board president of Community Power, a nonprofit organization activating Minnesota residents and businesses to create clean, local, equitable, affordable, and reliable energy systems.

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